Digital Transformation Key to Closing Gaps, With Dramatic Growth Expected Over the Next 2-3 Years
HR organizations are making progress on improving key capabilities, according to 2019 Key Issues research from The Hackett Group, Inc. But improvements have been slow to come and gaps remain, the research found, while HR organizations also find themselves challenged to address an array of areas that are critical to helping the enterprise achieve its objectives.
“In order to close the capability gaps we’ve seen, and to truly step up the pace of digital transformation, HR organizations require a long-term plan of action that prioritizes closing critical gaps while leveraging technology to its fullest”
The research found that most HR organizations remain behind the curve in addressing areas that are central to achieving enterprise goals: developing executives who can lead in volatile environments, supporting enterprise digital transformation, and dealing with critical talent/skill shortages. While some key development areas are targeted for improvement in 2019, others, like finding solutions to skills shortages, retaining key staff, and strategy execution, are not likely to receive the attention they need. Progress may be hampered by the expectations of flat HR budgets and headcounts.
To help resolve these shortfalls and achieve next-generation HR capability, many organizations are engaging in digital transformation, embracing the adoption of emerging technology. But most HR organizations are off to a slow start in these efforts. Only about a third of HR organizations say that digital transformation has had a high impact on helping them attain enterprise objectives or significantly improved their service delivery models and performance, the research found. But this is expected to improve dramatically over the next two to three years, as the pace of digital technology adoption increases. HR is expecting to see the most substantial gains in areas that include modernizing core ERP platforms (42 percent adoption growth), robotic process automation (2.5x growth), data visualization tools (59 percent growth), and virtual digital assistants/chatbots (2.4x growth).
Despite rising stakeholder expectations, HR operating budgets are expected to shrink by 0.2 percent in 2019, and headcount will decline by 0.4 percent. With expected revenue growth of 5.7 percent, the result is significant productivity and efficiency gaps that HR must overcome.
In terms of its ability to support the enterprise, the research found that HR organizations say they have low ability to address issues in five critical areas. Three of these enterprise priorities have remained consistent — developing executives who can lead in volatile environments, enabling successful business strategy execution, and enabling digital transformation. Two are new to the top five list this year – support for enterprise customer-centricity and the ability to address talent and skills shortages.
In addition, an assessment of HR’s internal critical development priorities — the things HR needs to do internally to better meet enterprise objectives — sees a similar pattern, with HR showing limited ability to address six areas of high importance: leveraging technology to improve HR performance; aligning HR skills with changing business needs; modernizing HCM applications; implementing end-to-end HR process management; improving talent management; and improving HCM analytical capabilities.
HR’s planned improvement initiatives for 2019 also reveal significant cause for concern, the research found, as it does not appear to be mobilizing against many of the highest cited priorities. Only some of the improvement priorities and development areas that have been identified are among the top initiatives that are either planned or underway. Supporting enterprise digital transformation and leveraging technology to improve HR efficiency and effectiveness, for example, are the first and third most common HR improvement initiatives planned for 2019, respectively. In addition, improvement initiatives are spread out among a wide array of issues, with none being tackled by a majority of study participants.
According to Max Caldwell, The Hackett Group’s Principal in Charge of the People & HR Transformation Practice, “Many organizations are finding it difficult to unlock the full value of the HR business partner role, which is key to HR’s ability to add strategic value to the business. The opportunity here for HR is enormous when you look at the talent challenges facing virtually all organizations. To drive growth, businesses need talent with different skills than in the past, and they also need to cultivate the next generation of executives that can lead in a more demanding, volatile, and digital environment.”
According to Harry Osle, The Hackett Group’s Global HR Practice Leader and Principal in Charge of the HR Advisory Practice, “To truly achieve next-generation HR, executives must understand the importance of digital transformation of the function and have for several years been expecting it to accelerate. However, our data shows that digital transformation has been unfolding more slowly than anticipated, and the benefits have been slow to materialize. At the same time, HR organizations have higher adoption levels of core digital platform technologies than any other business services area. And HR organizations that take a continuous improvement approach expect to see increased impact in the next two to three years.”
“In order to close the capability gaps we’ve seen, and to truly step up the pace of digital transformation, HR organizations require a long-term plan of action that prioritizes closing critical gaps while leveraging technology to its fullest,” said Osle. “It must be a multi-pronged effort that incorporates technology implementation, data standards, process redesign, organizational restructuring, and more.”
The Hackett Group’s 2019 HR Key Issues research, “2019 CHRO Agenda: Closing Critical HR Capabilities Gap,” is based on results gathered from about 150 executives in the US and abroad, most at large companies with annual revenue of $1 billion or greater.
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